Euro

DEFINITION of 'Euro'

The euro is the official currency of 19 of the 28 European Union countries. The euro was introduced by the EU in to the financial community in 1999 and physical euro coins and paper notes were introduced in 2002. Euros are printed and managed by the European System of Central Banks (ESCB).

BREAKING DOWN 'Euro'

The euro is the national currency of the EU member states who have adopted it, including Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Together, these countries create what is called the Eurozone, a region where the euro serves as a common national currency for all of the separate nations.

This has important benefits, such as removing exchange rate risk from businesses and financial institutions operating in an increasingly globalized economy. On the other hand, critics of the euro system argue that it produces negative consequences, such as concentrating the power to set monetary policy in the European Central Bank. This removes the ability of the EU's member nations to implement monetary policies specific to themselves, locking them into the monetary policy established for the entire Eurozone, even though local monetary conditions may differ substantially from the overall Eurozone.

One criticism of the euro is that it is the currency that its value is aligned to closely to the German economy, and other smaller nations that are at different stages of their economic cycle suffer. For example, if the German economy is booming, the euro is likely to be high. However, if another nation such as Spain is in an economic downturn it could use some relief with a weaker currency, and under the euro regime this is often not the case.